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A.M. BEST ISSUES 328 BEST'S RATINGS IN NINTH WEEKLY RELEASE

    OLDWICK, N.J., June 1 /PRNewswire/ -- The A.M. Best Company today released the ninth edition of its 1993 Best's Rating Monitor. Best's Ratings were issued to 198 property/casualty companies and 130 life/health firms, including Employers Reinsurance Corporation, General Accident Insurance Group, Nationwide Group, Pacific Mutual Life Insurance Company, Skandia America Reinsurance Corporation, Sun Life Assurance Company of Canada and Transamerica Insurance Group.
    Based on the evaluation of year-end 1992 financial results and subsequent relevant events, Best's Ratings will be released on a weekly basis through the end of June. To date, Best's Ratings have been assigned to 1,103 property/casualty companies and 658 life/health insurers. Best's Ratings are continuously monitored throughout the year with formal rating reviews performed on six-month and nine-month financial results.
    Rating rationales for 18 property/casualty and four life/health groups are listed below:
    ALLIED Insurance Group, Des Moines, Iowa, was assigned a 1993 Best's Rating of "A" (Excellent). The group's excellent financial strength was affirmed and its rating level of "A" was unchanged. The rating applies to four intercompany pool members led by AMCO Insurance Company (formerly led by Allied Insurance Company) and an affiliate that receives the rating of one of the pool's members.
    This rating assignment reflects ALLIED's improved operating performance and good capital position that was further strengthened in February 1993 with a $36 million capital contribution from a secondary offering of 1.1 million shares by ALLIED Group Inc., a downstream public holding company. The company's recent financings and improved earnings have strengthened the group's capital and favorably positioned ALLIED to opportunistically expand and support its strong personal lines market presence in the Midwest and western states. The group has modest exposure to wind and hail losses that are well-managed and protected by catastrophe reinsurance. These positive rating factors are offset by the group's historically aggressive underwriting leverage and modest operating returns.
    "Despite an elevated level of storm losses in recent years, ALLIED's profitability, with a five-year combined ratio of 104, has outperformed the industry by an average of six points," said John H. Snyder, senior vice president of Best's property/casualty division. This strong profitability is derived from management's personal lines expertise, its adherence to price and loss reserve adequacy and its favorable operating environment in the Midwest where nearly 60 percent of its business is generated. While ALLIED's underwriting results have been stable, historically the group generated modest operating returns from a lower invested asset base, with a five-year pretax return on revenue of 5 percent. The group's successful stock offerings in February 1992 and February 1993, increased invested assets and improved earnings have enabled ALLIED to increase the pool's surplus over 50 percent since year-end 1991, Mr. Snyder added.
    New capital has enabled the group to considerably de-leverage its balance sheet, with $534 million of net premium writings supported by pro-forma surplus of $335 million. The group maintains a high-quality investment portfolio, made up largely of corporate and U.S. government bondholdings. Excluding short-term revolving debt associated with the holding company's investment service subsidiaries, ALLIED Group Inc. maintains modest financial leverage with a debt-to-equity ratio under 20 percent. ALLIED Insurance Group ranks among the top 75 property/casualty underwriters in the United States with over $900 million in total assets.
    American Royal Reinsurance Company, Philadelphia, was assigned a 1993 Best's Rating of "A-" (Excellent). The company's excellent financial strength was affirmed and its rating level was lowered from "A" to "A-."
    This rating assignment reflects the reinsurer's good capitalization which is enhanced by conservative loss reserves and excellent balance- sheet liquidity. These positive rating factors are derived from the reinsurer's predominant facultative book of business as well as its opportunistic expansion in the accident and health lines, which have experienced favorable rate increases in recent years. Offsetting these positive factors is the 12 percent decline in its 1992 surplus due to the substantial losses on the company's property treaty book resulting from the unusual level of catastrophes. In addition, the reinsurer's position in the U.S. market has slipped due to the uncertainty surrounding its ownership and its static capital level of approximately $55 million. Both of these issues come at a time when commitment and security of a reinsurer are paramount to companies within the industry.
    "Excluding the elevated catastrophe losses in 1992, the reinsurer's normalized underwriting results have been relatively stable over the last five years, as evidenced by a five-year combined ratio of 110, reflective of the profitable performance of its accident and health book and selective underwriting in the casualty facultative market," said John H. Snyder, senior vice president of Best's property/casualty division. While surplus has remained relatively flat in recent years, the company's strategic reduction in premium volume due to inadequate rates has enabled it to maintain conservative operating leverage with over $41 million in premiums supported by $54 million in surplus. The reinsurer maintains a conservative investment portfolio with 89 percent of assets invested in high-quality bonds. American Royal Reinsurance Company ranks among the top 40 professional reinsurers in the United States with over $169 million in total assets.
    AVEMCO Group, Frederick, Md., was assigned a 1993 Best's Rating of "A+" (Superior). The group's superior financial strength was affirmed and its rating level of "A+" was unchanged. The rating applies to the AVEMCO Insurance Company, its two wholly owned subsidiaries and National Insurance Underwriters, which is reinsured by AVEMCO. The ultimate parent, AVEMCO Corporation, is a publicly traded insurance holding company.
    This rating assignment reflects the group's outstanding financial performance, conservative operating strategy and superior capital position. "The group maintains a very strong franchise as the largest writer of general aviation insurance in the United States and has consistently produced profitable underwriting results as a specialty carrier writing various types of aviation insurance for owners and operators of general aviation aircraft as evidenced by a five-year average combined ratio of 86," according to John H. Snyder, senior vice president of Best's property/casualty division. "This has enabled the group to maintain a generous dividend plan to the parent and still increase capital by 34 percent over the last five years," he said.
    Results for 1992 were adversely impacted by an increase in both the frequency and severity of losses, as well as several weather-related losses, including Hurricane Andrew. However, the group's 1992 combined ratio of 96, the worst in the last five years, was still 20 points better than the industry. Due to the difficult market conditions currently prevailing in the aviation market, the group has introduced other niche businesses including pleasure marine, lenders single interest and short-term health. Business is generated through salaried employees via mail and telephone, as well from several affiliated producers. Operations were very conservative with over $80 million of policyholders' surplus supporting $58 million of net writings at year- end 1992.
    California State Automobile Association Inter-Insurance Bureau, San Francisco, was assigned a 1993 Best's Rating of "A+" (Superior). The company's financial strength was upgraded from "Excellent" to "Superior" and its rating level was raised from "A" to "A+."
    This rating assignment reflects the insurer's consistent profitability, closely controlled and focused underwriting and strong capital position. These positive rating factors are derived from its automobile club affiliation, which tends to improve risk selection and marketing opportunities, low-cost exclusive agency force and diligent claims management practices, including aggressive fraud investigation.
    "Over the past five years, the exchange's profitability has consistently outperformed the personal lines industry with a five-year average combined ratio of 102, which is eight points better than the industry," said John H. Snyder, senior vice president of Best's property/casualty division. Results have been effected in recent years by a series of catastrophes, including the Oakland fire, and the payments of relatively large policyholder dividends. The exchange has begun a series of improvements to its homeowners book to reduce their catastrophe exposure. New rating factors will more accurately reflect structures exposure to damage from an earthquake or fire including types and quality of construction, proximity to faults and soil conditions, as well as insuring that policy limits reflect replacement costs. Nevertheless, policyholders's surplus has almost tripled over the five- year period. The exchange develops an extremely low expense ratio, which is largely the result of maintaining a low cost, direct sales distribution channel. Expenses increased marginally in 1992 due to management initiatives to improve services to members and core system replacement, which should produce long-term advantages.
    Excellent capitalization is maintained with $1.1 billion in surplus supporting $1.3 billion of moderately short-tailed business. The investment portfolio consists primarily of investment-grade, government agency and special revenue-fixed income securities. The exchange recorded net premium writings of $1.3 billion in 1992, ranking it among the 40 largest companies or groups that write property/casualty insurance business in the United States. They also rank among the top five personal automobile insurers in California.
    Combined Insurance Company of America, Chicago, was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
    This rating assignment reflects the company's favorable earnings performance, strong capitalization and its highly focused strategy to target market niches. This rating also acknowledges the benefits which are expected to arise from the internal restructuring of AON Corporation's life/health insurance units which is being pursued to streamline and functionally realign the businesses. "A.M. Best believes that such actions will enhance the profitability of Combined Insurance Company of America in the future," said Larry G. Mayewski, senior vice president of Best's life/health division. Partially offsetting these favorable items is the company's concentrated operations in the individual health insurance arena, which is somewhat vulnerable to potential changes arising from state and federal health care reform efforts, its relatively high level of affiliated holdings and its annual dividend requirements which contribute to moderate debt service at the parent holding company.
    Combined Insurance Company of America maintains a favorable liquidity position, which at year-end 1992 was supported by $665.3 million in investment-grade bonds, cash and short-term obligations. Due to the company's role within AON Corporation, it has traditionally maintained a relatively high degree of affiliated common stock investments, which at year end accounted for approximately 41 percent of total assets. However, these subsidiary investments have continually provided diversity and support to AON Corporation. Combined Insurance Company of America ranks among the 100 largest life/health insurance companies in the United States when measured by total assets.
    In addition, Life Insurance Company of Virginia, Richmond, Va., an affiliated company, was assigned a 1993 Best's Rating of "A+" (Superior). The company's superior financial strength was affirmed and its rating level of "A+" was unchanged.
    This rating assignment reflects the company's heightened earnings performance in recent years, its favorable balance-sheet quality, strong capitalization and disciplined approach toward asset/liability management. This rating also acknowledges the benefits which are expected to arise from the internal restructuring of AON Corporation's life/health insurance units which is being pursued to streamline and functionally realign the businesses. A.M. Best believes that such actions will contribute to enhancements and stability in the insurer's future profitability. Partially offsetting these items are the fluctuating results of its single premium annuity business, its annual dividend requirements which contribute to moderate debt service at the parent holding company level and its large exposure to collateralized mortgage obligations which subjects the company to a relatively high degree of interest-rate risk.
    Life of Virginia maintains a very high-quality investment portfolio and strong liquidity posture. At year-end 1992, the company's asset portfolio was supported by $4.3 billion in investment-grade bonds, cash and short-term obligations. Although approximately two-thirds of Life of Virginia's bond investments represent CMO securities, its high concentration of planned amortization class tranches (PACs), combined with the market value adjustment and surrender penalty features of its accumulation product liabilities, provides adequate insulation from the risk of disintermediation. Life of Virginia ranks among the 50 largest life/health insurers in the United States when measured by total assets.
    Employers Reinsurance Corporation, Jefferson City, Mo., was assigned a 1993 Best's Rating of "A++" (Superior). The group's superior financial strength was affirmed and its rating level of "A++" was unchanged. The rating applies to Employers Reinsurance Corporation and its two subsidiaries that receive the parent's rating.
    This rating assignment reflects the group's superior capitalization, conservative operating strategy, high-quality investment portfolio and continued outstanding financial performance. These positive rating factors are derived from the group's disciplined underwriting strategy, its leadership position in the direct reinsurance market and solid relationships with its ceding companies, which all allow the reinsurer substantial flexibility in setting price and terms. In addition, because of its substantial excess casualty and accident and health books of business, the group has modest catastrophe exposure, as evidenced by a less than a two-point increase in the 1992 combined ratio. Partially offsetting these strengths has been $700 million in dividend payments to its parent company, General Electric Capital Services, which have limited the increase in capitalization over the last three years.
    "The group's underwriting results continued to exhibit a very strong and stable trend, due to its position in the market and its ability to select profitable business, with a five-year combined ratio of 103, which outperformed the reinsurance sector by approximately five points," said John H. Snyder, senior vice president of Best's property/casualty division. In addition, the group's sizable capital base has generated substantial investment income, although somewhat depressed in recent years due to falling interest rates, and has generated a five-year pretax return on revenue of 22 percent which compares favorably to its peers.
    The group maintains conservative capitalization with $1.5 billion in premiums supported by over $1.5 billion in surplus. The group's solid
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Date:Jun 1, 1993
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